Counterexamples for FX Options Interpolations -- Part I

2025/12/22 by Jherek Healy, Healy, Jherek · 1 voice
Decision Sciences · Economics, Econometrics and Finance · #Capital Investment and Risk Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Pricing of Securities (q-fin.PR) #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #Stochastic processes and financial applications #q-fin.CP #q-fin.PR #q-fin.RM

paper · pdf · doi:10.48550/arxiv.2512.19621

openalex publication_date 2025/12/22 · arxiv published 2025/12/22 · arxiv updated 2025/12/22 · openalex created_date 2025/12/24 · openalex updated_date 2026/07/28

Abstract

This article provides a list of counterexamples, where some of the popular fx option interpolations break down. Interpolation of FX option prices (or equivalently volatilities), is key to risk-manage not only vanilla FX option books, but also more exotic derivatives which are typically valued with local volatility or local stochastic volatilility models.

Discussions

• Jherek Healy: Counterexamples for FX Options Interpolations -- Part I https://arxiv.org/abs/2512.19621 https://arxiv.org/pdf/2512.19621 https://arxiv.org/html/2512.19621 [bsky, 0 points, 0 comments]

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